In May 2022, Caixabank presented its strategic plan for the next three years, until 2024, in which it contemplated a shareholder return of 9,000 million euros, between the payment of a cash dividend and the repurchase of shares. The bank chaired by José Ignacio Goirigolzarri made these estimates taking a Euribor as a reference, the index to which most variable-rate mortgages are referenced, from 0.32% in 2022, to 1.48% in 2023 and in 1.56% in 2024. Some forecasts collected from the interest rate curve expected by the market at the end of March of last year.
But the truth is that these estimates have become obsolete and the ECB has raised interest rates, exceeding initial forecasts to control inflation that, in the case of core inflation, continues to run amok. As a consequence of this, the Euribor has skyrocketed and is already close to 4% in both daily and monthly rates. In addition, the market believes that the price of money will remain high until the fourth quarter of 2024, when the ECB reaches the first cuts.
Given this new paradigm shift, Caixabank could exceed its target return on capital of 9,000 million euros for 2022-2024 by between 1,000 and 2,000 million euros, according to calculations made by the market. Experts believe this would translate into a new share buyback program. Where would this excess capital come from? Precisely the rise in interest rates by the ECB.
José Ramón Iturriaga, a partner at Abante and manager of Okavango Delta, who has a strong position in the entity, explains that the “banks have a tailwind due to the rise in interest rates” and, although the ECB is beginning to the reverse will not translate into a return to negative rates. In addition, “they continue to have a high ratio of deposits to loans”, which takes pressure off them to repay fixed-term deposits and, furthermore, the situation of the economy continues to be favourable. In short, Iturriaga believes that the entities will have an excess of capital that once “the dust raised by the near financial crisis settles will improve shareholder remuneration.” And, he mainly bets on Caixabank due to its strong domestic character.
Prudence from the entity
Regarding the tax, the payment of the tax for Caixabank was lower than calculated, 377 million euros. And if there is a political turn in the elections, with a government of the Popular Party, and that would lead to the abolition of the tax, this would result in a possible increase in capital returns.
The market quantifies that the improvement in Caixabank’s capital generation would exceed 170 basis points for this year and the following. Added to this is the fact that the CET1 buffer remains above the medium-term target range and increases to more than 1,000 million euros, which “allows shares to be repurchased with a potentially similar or slightly greater scope than those already carried out”.
Although not all experts are so optimistic. Nuria Álvarez, financial analyst at Renta 4, believes that after an extraordinary year for banks such as this year, there are others of high uncertainty due to the rise in the cost of liabilities, which could be higher next year and due to an increase in the cost of risk if the economy finally ends up deteriorating precisely because of the rise in interest rates and the high rise. In this sense, there has already been a first consequence and the euro area economy entered a technical recession in the first quarter, after the GDP data was revised.
Faced with this greater uncertainty, Álvarez acknowledges that the banks will have generated excess capital this year, but that in the long run they may need it and he believes that they will keep this amount unused as a cushion against a possible deterioration of the situation, since the interest margin will grow this year. But once the entire credit portfolio has been repriced and without the possibility of improving the interest margin due to an increase in the volume of credit granting, it makes it more difficult to repeat the results of 2023.